Investing in carbon offsetting and removal is necessary for the transition to net zero. Here, we’ve created the ultimate guide to carbon offsets.
Empreinte carbone 💭
March 17, 2022
If you’re trying to get to net zero, at some point you’ll start thinking about carbon offsetting — and maybe even carbon removal. But there’s a lot of terminology in the carbon space, and it’s not always clear what these terms mean. Here, we’re giving you the complete guide to carbon offsetting and removal: from what it means, to how it’s done, to evaluating your options when you’re ready to invest.
The idea of carbon offsetting goes back to the late 1980s, when decision makers around the world were starting to realize that we’d need to take action if we wanted to slow down or reverse climate change. The first carbon offset project was actually an agriforest in Guatemala.
In 1992, the Kyoto Protocol outlined the first offset provisions under the CDM (Clean Development Mechanism), which allowed developed countries to offset their emissions by investing in environment-positive projects in developing countries. This established the ‘compliance’ market for carbon credits (more on this later).
But voluntary carbon offset credits appeared on the scene after 2005, once people realized that many companies — beyond just governments and regulated companies — were interested in offsetting their carbon footprints.
And from there, the market for carbon offsets has only expanded.
A carbon offset is an action or a project that reduces the amount of carbon dioxide that is released into the atmosphere. Essentially, carbon offsets are designed to compensate for the greenhouse gas emissions that are already being produced as a result of human activity.
Examples of carbon offsets 💨
Examples of carbon offsets include projects like:
The terms carbon offset, carbon offset credits and carbon credits are often used interchangeably, but there’s a subtle difference. Where carbon offsets refer to projects and activities that reduce carbon dioxide in the atmosphere, carbon offset credits represent a specific unit — one metric ton of carbon dioxide — that is removed from the atmosphere, or more commonly, prevented from ever getting there.
A unit like this makes carbon credits transferable, meaning that one organization (say, a wind farm) can sell the unit to another organization (say, a software company), to compensate for the greenhouse gasses the software company emits.
This is crucial, because it means the software company doesn’t have to start a wind farm in the empty lot next to its office to compensate for its emissions. And this is how we end up with carbon credit markets.
And speaking of markets, there are two kinds of carbon credit markets: the mandatory market, and the voluntary market. Governments or legal systems regulate mandatory or ‘compliance’ markets. In these markets, organizations that are required to offset carbon emissions can purchase the credits they need to stay compliant.
On the other hand, voluntary carbon markets operate independently from compliance markets. In the voluntary market, companies and organizations can buy and sell carbon credits simply because they want to — whether to fulfill their own net zero targets, or for other reasons.
The tricky part about voluntary carbon markets is that, historically, they haven’t been as well regulated as mandatory markets. But at the COP26 in 2021, the UN laid down rules for voluntary carbon markets, so this space is changing quickly. When we talk about carbon offsets, we’re usually talking about the voluntary market.
Carbon removals are a particular kind of carbon offset — they’re activities that actually extract carbon dioxide from the atmosphere. This is what makes them different from most carbon offset projects, which are designed to simply reduce carbon dioxide emissions now and in the future (for example, by creating more sources of clean energy), rather than remove the carbon that’s already out there.
Think of carbon removal like reversing the damage we’ve already done (a ‘cure’), and carbon offsets like compensating for the damage we’re currently doing, as well as preventing more damage from happening in the future (a ‘prevention’). To get to net zero fast, we’ll need both the prevention, and the cure.
Whether you’re an individual, a company, or a government, a commitment to net zero will require investing specifically in carbon removal credits (not just carbon offset credits). These credits should be equivalent to, or greater than, the remaining ‘essential’ emissions that you physically can’t reduce.
And as a planet and a global society in general, the only way to get to net zero and keep temperature rises to below 1.5°C (a target we agreed on at COP 21 in Paris, 2015) is to start removing the carbon that’s already out there.
If this is the case, and if carbon removal is in some ways more valuable than carbon offsetting (because it can actually reverse damage already done), then why aren’t carbon removal projects and credits more popular than carbon offset credits?
The reason most carbon credits come in the form of offsets and not removals is that artificial carbon removal is very, very, very difficult to do. It’s still small in scale, and it’s unsure whether we’ll be able to safely scale it to make carbon removals a viable option for addressing climate change. And, even more bad news, it’s expensive — even for natural carbon removal projects that don’t involve new technology.
Currently, carbon removal credits (if you can find them) will cost you up to ten times more than a carbon offset credit.
Examples of artificial carbon removals include projects like:
Examples of ‘natural’ carbon removals include projects like:
Carbon sinks are natural environments that can absorb large amounts of carbon dioxide from the environment (we call this process natural carbon sequestration). Usually, these are oceans and mature forests.
Investing in the conservation and protection of forests and oceans is typically considered a carbon removal credit because these natural reservoirs essentially do what modern technology is attempting to do at scale: remove carbon from the atmosphere, and store it safely.
The reason these natural resources need to be protected is that if they’re destroyed, the enormous amounts of carbon they store will be released back into the atmosphere. It’s easy to understand protecting a forest from deforestation, but it’s harder to understand that oceans that aren’t functioning effectively (due to pollution, warmer waters and disrupted ecosystems) can’t sequester carbon properly, either.
Carbon sinks are an easy way to visualize the problem of carbon storage. When it comes to artificial carbon capture through technology, although we have the ability to capture GHGs, we’re currently only doing this on a very small scale, and not enough research has been done to determine whether we can safely (and permanently) store billions of tons of carbon once we remove it from the atmosphere.
So although carbon capture works in theory, it’s not quite yet ready to scale, which means we can’t rely solely on carbon removals to help us get to net zero.
There are a number of factors that go into evaluating the legitimacy of carbon offset projects. But why do we need to evaluate them at all?
Unfortunately, like any industry, the carbon offsetting space is subject to errors, and, sometimes, fraud. Because carbon credits are virtual items and not physical goods, it’s hard to verify whether what you’re buying is real. And even if there’s no bad intent behind it, there are many ways carbon offsets can be illegitimate, or cause additional problems in the world.
Let’s take a look at the factors that go into evaluating a carbon offset or a carbon credit.
The results of the carbon offset must be able to be measured and quantified in a standardized way, so that we can clearly see the size of the carbon reduction achieved.
Additionality means that the carbon offset must result in a carbon reduction that wouldn’t have happened otherwise. In other words, the investment needs to fund a project that couldn’t take place without it. (For example, would that forest have been preserved anyway?)
If it’s a carbon sequestration project you’re investing in (one that removes and stores CO2 from the atmosphere), the project must guarantee that the carbon will remain out of the atmosphere permanently, or for a very long time. (If the carbon is simply released after the credit is purchased, nothing is achieved.)
Leakage occurs when carbon emissions aren’t truly reduced by a project — instead, they just happen elsewhere. For example, maybe a particular patch of forest is saved from deforestation, but the timber that would have been created and sold from this area is simply acquired from another, unprotected forest.
On top of this, all legitimate carbon offsets must make sure they’re not creating an additional negative impact on the environment (or communities). As an example, consider a wind farm project built on land belonging to Indigenous communities.
Carbon offsets need to be verified by third-party auditors.
Sometimes carbon offset schemes over-report the amount of carbon they’ve reduced. This can happen by overestimating baseline emissions, which comes down to an error in the way the reductions are calculated (essentially, the project hasn’t accounted for additionality).
It can also happen when a project underestimates actual emissions. Since reductions are calculated by comparing actual emissions with predicted baseline emissions after a project is complete, if the actual emissions are underestimated in the first place, the reductions won’t be as significant as initially calculated.
Sometimes projects also forget to take their own carbon emissions into consideration (essentially the problem of leakage). And sometimes, credits are issued through forward crediting, which refers to the offsets a project expects to achieve. This can be a problem, because it’s hard to accurately estimate this, which means credits can easily be oversold.
One big problem for carbon offsets is how easily they can be double counted. Since credits are virtual products, there are a few ways they can be double-sold. The first is through double issuance: when a carbon offset project accidentally gives two credits to a project, but it only accounts for one; or when two different projects claim the same reduction.
The second is through double use, which is when the same credit is sold twice (this is usually through fraudulent sellers). The third is through double claiming, which is when a project is issued offset credits that are then also counted by another organization, such as a government or a company, and both organizations claim this reduction in their reporting.
It’s easy to find a carbon offset to buy, but it’s not so easy to figure out whether it’s legitimate. We recommend working with a partner who can point you in the right direction (like our team at Greenly), or starting with an up-to-date list from a source you trust.
There are also a number of third party services and tools that evaluate carbon offset projects, such as Sylvera.
Although carbon offsetting and removal is a crucial part of the transition to net zero, and necessary for keeping global temperature rises below 1.5°C, investing in these credits isn’t like waving a magic wand.
It’s easy to think of buying carbon credits as an easy way to fix a global problem, and make up for the environmental damage your business creates through its operations. Many people believe that these credits are a way to ‘throw some money at the problem’, and have it disappear.
But global warming is not a ‘throw some money at it’ kind of problem. Yes, investing in offsetting and removal projects is helpful, but we also need to take action to reduce our emissions in the first place.
Think of carbon credits like the third step in the journey to going carbon neutral: first, you track your footprint (for help with that, talk to Greenly). Then, you focus on reducing the size of your footprint (meaning, your carbon emissions) as much as humanly possible. Then, and only then, does investing in carbon offsets and removals make sense.
Without this second step to reduce your emissions, you’re still creating an overall negative effect on the environment. You can’t simply offset your way out of the problem.
But if tracking and reducing your carbon emissions is something you’re passionate about doing, talk to the team at Greenly. We’ve helped hundreds of companies measure and reduce their carbon footprint, and find legitimate carbon offsetting and removal projects to invest in.